Contract manufacturers must evolve with electronics design

The aggressive nature of the electronics industry- whether related to price, design or market demands- is altering the dynamics of contract manufacturing.

As roles evolve, contract manufacturers will need to transform their
business models accordingly. Not all electronics contract manufacturers
are well-equipped to handle the increasing responsibilities and must
find their own way to align business models with growth objectives. To
keep pace with rapidly advancing product and technology evolution,
contract manufacturers must acquire and apply their broader knowledge to
product requirements and translate this capability to manufacturing and
other operations.

Many contract manufacturers are beefing up
design support and joint design manufacturing capabilities. As
competition increases, more manufacturers will turn to this strategy for
greater differentiation. From the OEM’s perspective, increasing the
role of electronics contract manufacturer can speed product development,
manufacturing and time to market.

Many factors will dictate the
growth of electronics contract manufacturing. While a majority of OEMs
already employ this model, some prefer to retain most processes
in-house. OEMs previously relied on contract manufacturers to provide
them with a global footprint and the ability to capitalize on
competitive manufacturing strategies.

OEMs and contractors alike
are experiencing a paradigm shift in selecting the right regional
manufacturing strategy. Some manufacturing is returning to North America
while Mexico is gaining outsourcing opportunities. While China has
continued to dominate electronics contract manufacturing, increasing
wages and rising logistics costs are offsetting cost savings.
Manufacturing location will depend on proximity to OEMs and especially
customers.

Outsourcing functions will continue to generate demand
from OEMs across different vertical markets, especially where OEMs do
not have the resources for manufacturing and supply chain operations.
Ultimately, the ability of a contract manufacturer to succeed will rely
on managing customer relationships, managing assets prudently and
leveraging information to gain a greater market share.

--Lavanya Rammohan is an electronics research analyst at Frost & Sullivan.